I have previously profiled some of the best practices for a reverse auction process. In the final point, I mentioned that better communication with suppliers would help build confidence (and thus participation) in the process. Here is a real example of what happens when most of the rules and suggestions from last week are disregarded. I originally wrote this as part of the eRFx Wiki Series.

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Profile: A global, multi-billion European pharmaceutical company determines the need for a large scale IT services procurement. An RFP is issued to gather information and pricing from a global pool of potential vendors. It is estimated this problem is costing the company millions per year in loss.

Problem: A sourcing team and committee are assembled and the first version of the RFx process is created. The document sent to suppliers is over 150 pages long with highly detailed questions regarding all aspects of the technology deliverable. Vendors can quickly deduce that the line of questions show a total lack of comprehension of problems from the buying team with no perceivable direction for the project or understanding of the solutions being requested. Essentially, the buyer is requesting the supplier to spend significant time and energy to respond to questions that have little chance to result in any business.

Result: Most qualified suppliers are able to quickly surmise that the buying team has gone into this project without doing proper research and can conclude one or multiple of the following:

• There is no budget for this project
• The questions are so onerous and detailed that a supplier (or incumbent) has already been chosen and the data is being collected to make it “official”
• The buyer is going through a price discovery exercise to create leverage against an incumbent
• This will never be awarded due to the lack of understanding on the front end
• The questions are so wildly variable that the supplier can forecast a potentially unprofitable/undesirable client

Once the RFP has been issued, most suppliers decline the invitation to bid. This results in a critical loss of supply base, reducing the available solution pool to unacceptable levels. Of the bids submitted, none are comparable side-by-side, making all of them useless in current form.

Eight months after issuing the request, the buying team formally announces to the entire supply base that the project has been permanently canceled. Internally, the waste of time and resources of the buying team creates such poor results that it may take years for the initiative to regain effective standing again.

Solution: The buying team should have taken a milestone based approach where an initial survey was issued to gather basic information and build knowledge internally about the marketplace and possible solutions or alternatives to traditional thinking. Once a deeper understanding was built, a subsequent RFx would be generated to follow up unresolved issues and deal with a more qualified group of suppliers. At this stage, the internal buy-in would be approved and communicated to the supply base to convey confidence and keep suppliers motivated in the process. As the bid methodically moves from stage to stage, each supplier that continues the process knows that they are competing equally and the investment being made will have a positive return on investment. Ultimately, every bid is measured by the end result and is affected by the number of companies that desire the business while remaining capable to perform it.

This post originally appeared July 2007.